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July factory output rebounds, Aug retail inflation decelerates

Industrial production in July grew by 2.6% while retail inflation slowed for the second month to 9.52% in August
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First Published: Thu, Sep 12 2013. 05 51 PM IST
In terms of industries, 11 out of the 22 industry groups in the manufacturing sector have shown growth during the month compared with the year-ago period. Photo: Hemant Mishra/Mint
In terms of industries, 11 out of the 22 industry groups in the manufacturing sector have shown growth during the month compared with the year-ago period. Photo: Hemant Mishra/Mint
Updated: Fri, Sep 13 2013. 01 00 AM IST
New Delhi: India’s factory output rebounded in July and retail inflation decelerated in August, data released on Thursday showed, the latest in a recent string of positive tidings for an economy that hasn’t inspired much cheer in the past year.
Like Deepak Parekh, chairman of India’s oldest mortgage lender Housing Development Finance Corp. Ltd, there are many who believe the worst is over for the economy. Parekh said so in an interview last week, but experts advise caution.
Still, it’s hard to ignore positive indicators such as double-digit growth in merchandise exports for two consecutive months, positive cues from the equity and currency markets in the past week, and fading war clouds in Syria—all of which are seen as green shoots of recovery by some people.
Factory output, measured in terms of the Index of Industrial Production (IIP), in July rose by 2.6% after two consecutive months of contraction due to a significant rise in manufacturing activity. Manufacturing and electricity grew 3% and 5.2%, respectively in July, but mining contracted 2.3%, data released by the statistics department showed.
Among industry groups, 11 out of the 22 in the manufacturing sector grew in July compared with the same period last year. While consumer goods continued to contract (minus 0.9%) mostly due to a significant dip in demand for consumer durables (minus 9.3%), the volatile capital goods segment, which represents investment demand in the economy, picked up by 15.6% in the month—spurred by an abnormal spike in electrical machinery production by 62%.
Meanwhile, retail inflation, as measured by the Consumer Price Index, slowed for the second month to 9.52% in August from 9.64% in July.
Wholesale price inflation has been rising for the last two months (it rose 5.79% in July). August data for wholesale price inflation will be released on Monday.
The Prime Minister’s Office on Thursday signalled a likely revival in public investment in a statement that said that at the end of the June quarter, the overall capital investment by 23 state-owned companies had achieved 94% of a Rs.25,131 crore target. In a review meeting of laggards such as NTPC Ltd, Coal India Ltd and Nuclear Power Corp. of India Ltd, the companies assured that they would exceed targets by the second or latest by the third quarter of the fiscal year, the statement added.
Madan Sabnavis, chief economist at CARE Ratings, said the recovery in industrial output in July should not be termed as the beginning of a virtuous cycle of investment.
“It is not all-encompassing and mostly due to a major spike in the capital goods segment,” he added.
Sabnavis said a virtuous cycle could start with a turnaround in consumer durables only around the festive season in October.
“We tend to think everything is inter-related. We should not get overexcited,” he added.
The Indian economy grew 4.4% in the first quarter of the current fiscal year (2013-14) compared with 5.4% in the year-ago period. After the first quarter gross domestic product data, Nomura (4.2%) and HSBC (4%) joined other brokerage houses in cutting their growth projections for the country in 2013-14 to below 4.5%.
Growth in India’s economy, Asia’s third largest, slowed to 5% in the year ended 31 March, the slowest pace in a decade. High interest rates in the face of persistently high inflation caused corporate investment plans to be put on hold and hurt consumer spending, while demand for exports was weak in key markets such as the US and Europe.
The negative effects of the industrial slowdown are likely to spill over into services sub-sectors such as trade, transport and banking, rating agency Crisil Ltd said in a report on the state of the economy released on Wednesday.
“The overall contraction in industrial activity will be sharper than what it was in each of the previous two years. Taking into account this slower-than-expected momentum, industrial output is now forecast to grow at a slower pace of 1% compared with 3.5% earlier,” Crisil added.
The Reserve Bank of India (RBI) in its September bulletin released on Wednesday said the investment outlook for 2013-14 remains subdued. “While the government has initiated some steps in the recent past to improve investment climate, results are yet to be visible,” it added.
RBI said the envisaged investment by the private corporate sector in 2013-14 is expected to be lower than that in the previous year.
The capital expenditure already planned to be spent in 2013-14 aggregated Rs.1,62,000 crore while in 2012-13, it stood at Rs.2,91,900 crore.
“The problem has been compounded by large projects in sectors like power and telecom getting stalled over last few years, which may lower the capital expenditure in pipeline. Removing the policy bottlenecks may reignite the investment scenario,” the central bank added.
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First Published: Thu, Sep 12 2013. 05 51 PM IST